Wall Street has also pushed higher since the open as investors turn their attention to US earnings and away from recent geopolitical and trade tensions. We saw notable outperformance in UK stocks, boosted by a weaker pound after UK inflation data surprised to the downside – headline CPI rose +2.5% YoY (f/c. +2.7%) while the core rate slowed to +2.3% (f/c. +2.5%).
The data has also led to divergence in core EU bonds with Gilts showing notable outperformance over their German counterparts. Euro Zone inflation data was also on the soft side but only prompted a brief drop in the Euro.
There was a lack of US macro releases this afternoon which sees the Dollar Index sit flat for the day while the Canadian Dollar fell sharply after the Bank of Canada left rates on hold. Elsewhere, oil prices added to earlier gains this afternoon after the DoE inventory report showed a drawdown of -1.1 Mln barrels.
Still to come today, the Fed’s Beige Book at 19:00 BST and possible comments from New York Fed President Dudley and Governor Quarles at 20:15/21:15 BST respectively.
* EU Council President Tusk warned there could be a retaliation over US tariffs. He also noted they have seen positive momentum in Brexit talks.
* UK Inflation Data (Mar)
• CPI M/M +0.1% versus +0.3% expected, previous +0.3%
• CPI Y/Y +2.5% versus +2.7% expected, previous +2.7%
• Core CPI Y/Y +2.3% versus +2.5% expected, previous +2.4%
• RPI Y/Y +3.3% versus +3.5% expected, previous +3.6%
• PPI Output Y/Y +2.4% versus +2.3% expected, previous +2.6%
* Euro Zone CPI Data (Mar F):
• CPI Y/Y +1.3% versus +1.4% flash/expected
• Core CPI Y/Y +1.0% versus +1.0% flash/expected
* Euro Zone Construction Output Data (Feb):
• Construction Output M/M -0.5%, previous -2.2% revised to -0.8%
• Construction Output Y/Y +0.4%, previous +3.7% revised to +6.9%
* Italian President Materella has given Senate President an exploratory mandate to form a government between the centre-right coalition and Five Star Movement
* @realDonaldTrump – Mike Pompeo met with Kim Jong Un in North Korea last week. Meeting went very smoothly and a good relationship was formed. Details of Summit are being worked out now. Denuclearization will be a great thing for World, but also for North Korea!
* Dallas Fed President Kaplan repeated his view for another two hikes this year, calling for a patient and gradual tightening of policy.
* ECB Governing Council member Villeroy said policy will remain accommodative for an extended period after QE ends. He argued that ending QE in September or December is not an existential question for the ECB.
* New York Fed President Dudley said they have observed that some community banks have taken on more interest-rate risk by increasing the maturity of their assets and the average duration of their loan portfolios
* Bank of Canada left their benchmark rate on hold
at 1.25% as was widely expected:
• Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data.
• Some progress has been made on the key issues being watched closely by Governing Council, particularly the dynamics of inflation and wage growth.
• This progress reinforces Governing Council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.
* DoE Weekly Oil Inventories:
• Crude -1.1 Mln versus -2.1 Mln expected, previous +3.3 Mln
• Distillate -3.1 Mln versus -0.4 Mln expected, previous -1.0 Mln
• Gasoline -3.0 Mln versus -0.4 Mln expected, previous -0.5 Mln
Industrial, material and energy games are leading with the latter boosted by higher oil prices following today’s DoE inventory report – US crude futures settled at $68.47 (+$1.95) and went higher thereafter.
Heavy losses for IBM have dragged the DJIA lower meanwhile after their offered disappointing guidance. US government bond yields have also risen today and while the Dollar Index is also ahead, gains are relatively small.
Sterling is the notable underperformer among the G10’s after UK inflation data surprised to the downside. The Canadian Dollar is not far behind after the Bank of Canada left rates on hold. At the Fed, St Louis President Bullard said the market does not see that much inflation pressured and called on the Fed to stay flat with the policy rate.
New York President Dudley said he expects US monetary policy to become slightly restrictive in the years ahead, adding that he support only gradual rate hikes as inflation remains below target. After the bell, we await earnings from American Express and Kinder Morgan.
* Italian Five Star Movement leader Di Maio said the Five Star are not willing to govern with the centre-right coalition. He added that the League must decide by the end of the week if they want to govern with Five Star.
* St Louis Fed President Bullard said the market does not see that much inflation pressured and called on the Fed to stay flat with the policy rate. He also warned they could have an inverted yield curve within six months.
* The UK’s House of Lords defeated the government’s EU Withdrawal Bill 348 to 228.
* US seeks to denuclearize
North Korea by 2020 (Nikkei):
• The U.S., Japan and South Korea are urging North Korea to commit to a hard deadline for the complete abandonment of its nuclear program, according to sources.
• The U.S. is seen to be suggesting a two-year time frame by 2020, which would be a political win for President Donald Trump who faces a re-election campaign that year.
* US targeting NAFTA deal
in three weeks: Sources (CNBC):
• The U.S. is aiming to reach a deal in principle with Canada and Mexico on the North American Free Trade Agreement in the next three weeks, according to congressional aides and industry executives who have been briefed by the Trump administration.
* Fed’s Beige Book:
• Economic activity continued to expand at a modest to moderate pace across the 12 Federal Reserve Districts in March and early April
• Upward wage pressures persisted but generally did not escalate; most Districts reported wage growth as only modest.
• Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs
* New York Fed President Dudley said he expects US monetary policy to become slightly restrictive in the years ahead, adding that he support only gradual rate hikes as inflation remains below target. He added that he sees a higher neutral policy rate of around three-percent.
* US crude futures settled at $68.47 (+$1.95) | Brent crude futures settled at $73.48 (+$1.90)
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